NBFC Registration - What is NBFC?

NBFC (Non-Banking Financial Company) is engaged in financial activities as defined under section 45-IA of the RBI Act 1934 but does not possess a banking license. A company can offer services such as Loans and Credit Facilities, Assets Financing, Acquisition of Shares, Stock, Bonds, Hire-Purchase, Insurance, Currency Exchange, Peer to Peer Lending, hedge funds etc.

However, they do not have permission to perform banking operations of accepting demand deposits from the public. They also cannot issue cheques drawn on it.

NBFCs are registered as per the rules and regulations prescribed under Companies Act 2013 and the RBI Act 1934. They are playing a vital role in executing financial functions in the economy. They help to meet the demand that remains unfulfilled by the traditional banking system in shorter processing time.

An NBFC can provide both secured and unsecured loans to the takers based on alternative lending models. The government has been promoting NBFC so that the unorganised money lenders and people willing to run financial services can organise their lending operations.

Benefits of NBFC License- Business Environment for NBFC in India.

The business environment in India is favorable for exponential growth. Financing business in India is highly regulated by the Reserve bank of India. Hence NBFC registration offers many benefits. A Registered NBFC allows to gain the confidence of borrowers, offers you the security of capital invested in the business.

Low-Cost NBFC Registration Process

Legal and Business risk

Attracts more borrowers

Easy to Raise Investments in NBFC

Access of CIBIL

Open Interest Rate without any Cap

Free to charge Processing Fees–No Cap

Protection by Law for recovery of loan

Easy Bank Finance

Up to 100%, FDI Allowed

Quick Loan Processing

Soft Eligibility Criteria

Fewer Rules and Regulations

What are the Roles and Functions of an NBFC?

NBFCs play a significant role in conducting financial services in the Indian economy. NBFC in India have undergone too many transformations in recent years. At present, most of the NBFC Start-ups have adopted high-end tech based business model.

These NBFCs are working actively to promote financial inclusion & as well aggressively complementing the banking sector.

NBFC creates a favorable balance in addressing the financial needs of the country, where a large number of applicants are turned down by traditional Banks of India.
NBFC provides loans based on alternative credit scoring model to assess the loan application.
Indian Fintech Start-ups have been using NBFC model to offer financial services.
Credit growth of registered NBFCs is recorded at 24.3% per year as against 21.4% for banks.
These NBFCs are working actively to promote financial inclusion & as well aggressively complementing the banking sector.
NBFC creates a favourable balance in addressing the financial needs of the country, where a large number of applicants are turned down by traditional Banks of India.
NBFC provides loans based on alternative credit scoring model to assess the loan application.
Indian Fintech Start-ups have been using NBFC model to offer financial services.
Credit growth of registered NBFCs is recorded at 24.3% per year as against 21.4% for banks.

Checklist for NBFC Registration in India

According to Section 45(1A) of the Reserve bank of India for any company to register as NBFC, the below conditions must fulfil.

Directors Profile

at least 1/3 of Directors must have experience in Finance.
Unique Business Plan

The company must have a detailed business plan for the next 5 years
Owned Fund

the Shareholders in total, Must have Rs. 2 Cr as a net owned fund, Invested Capital must not be the borrowed fund. A gift from Spouse is considered as an Owned fund.
Clean Credit History

The Directors and Shareholders must have no write-offs or have not willfully defaulted the repayment of loans to NBFC/Bank.
Experienced NBFC Advisor

Registering an NBFC as well as meeting the Regulatory compliance requires expert knowledge. Hence you may need to hire an experience NBFC Consultants to take care of NBFC Registration and Compliance after Cor.

What are the Types of NBFC in India?

There are two categories of NBFC. These are distinguished on activities in operation as well as on the authorization to take deposits.

NBFC Based on the Authorization to Take Deposits

The Deposit Taking NBFC (Type -1)
Non-Deposit accepting NBFC (Type -2)

NBFC Based on their Activities

Investment and Credit Company

Infrastructure Debt Fund (IDF-NBFC)

Factors (NBFC-Factors)

Peer to Peer Lending Marketplace

Infrastructure Finance Company

Core Investment Company

Micro Finance Institution (NBFC-MFI)

Mortgage Guarantee Company

Housing Finance Company

Chit Fund Company

Mutual Benefit Finance Company

What are the NBFC Pre Registration Requirements?

Before the NBFC filing there are certain pre-registration requirements for a registration of NBFC:

Register a Company as per Companies Act 2013
Arrange Capital of Rs. 2 Crore (Minimum capital requirement for an NBFC)
Create a Fixed Deposit of Rs 2 CR
FDI Compliance as per FEMA Act - In the case of foreign investment
Complete documentation for an NBFC license
Submission of necessary documents with FD receipt before RBI

Documents Required for an NBFC License in India

MOA of the NBFC Company

The object clause in the MOA is depicting the financial/Investment/Lending business.
Certified Copy of Registration Certificate

Obtain a Certified copy of Certificate of Incorporation (COI), MOA & AOA from the Regional registrar of companies
Latest KYC

Need updated KYC & Income proof of Directors and Shareholders
Net worth Certificate

Collect updated net worth certificate of Directors, Shareholders, and Company
Clean Banker Report

Need to Obtain a Banker report about the no Lien remark on the Initial Fixed deposit of Rs 2 Cr.
Education Proof

Proof of educational/professional qualification of the directors of the Applicant company
Credit report of Directors and shareholders

Latest credit reports of directors and shareholders are required.
Experience in the Financial sector

Submit at least one Director's profile with 10+ years’ experience in the financial services sector
Underwriting model

Submit a detail action plan about the loan products, fair practice code, credit and risk assessment policy.
Organisation Matrix

Need to provide organizations structure and decision-making process for approval/rejection of a loan application
System and IT Policy

Submit Information technology policy

NBFC Registration Departments

The founders are required to follow both online as well offline NBFC application process to obtain the NBFC license. The Reserve bank of India is an autonomous body, and it has two departments to regulate and supervise the function of an NBFC.

DNBR (Department of Non-banking Regulation)

The DNBR is responsible for conducting the Fresh NBFC Registration process as well for preparing the regulation for the NBFC. The DNBR has transparent as well innovative assessment process of NBFC Application.

The DNBR will email you or send you a formal notice if they need of any additional documents during the NBFC registration process. The RBI expects your submission/response to a notice within 30 days as per the NBFC regulations.

Assessment of Application Submitted for NBFC License (All Category of NBFC)
Investigation of Directors / Shareholders Profile
Communication with Applicant Company in Pre-Registration Process
Communicates Final Decision to the applicant company with the Approval of Executive Director office (RBI)
Regulates & Administer NBFC Business in India
Publish Notifications, Circular & Order for NBFC

DNBS (Department of Non-Banking Supervision)

DNBS is responsible for post-registration compliance and other administrative issues about NBFCs.

After Approval from DNBR (Department of Non-banking Regulation) collects Net owned certificate & Bankers Report – before they issue you the NBFC License (CoR) in Original
Responsible for Complying the NBFC Rules and Regulations issued by the RBI
Conduct Audit / On-site Inspection from Time to time
Communicates with NBFC for all On-going compliance
Suspend / Cancel NBFC License in case of Non-Compliance with the Laws
Educate and Conduct seminar for the general awareness about the NBFC Regulations, Compliance and Business.

Applicants can expect an NBFC license in 90 to 120 days after successful acceptance of an NBFC application.

How to Apply for NBFC Registration? - NBFC Registration Process Checklist

Before the filing of Application for COR (Certificate of registration), one should read the following checklist of NBFC registration Process.

Hire NBFC Registration Consultants

Step 1

Business Plan

Step 2

Application for CoR
(Certificate of Registration)

Step 3

Step 1 – Hire NBFC Registration Consultants

Experience Matters

Select an Experienced Consultant with Minimum 10+ years of Experience in NBFC & Banking laws.
Credibility

An NBFC Consultant firm should have a good team size of 100 to 150 with a combination of professionals like CA, CS, Lawyers, and Senior Bankers.
Verify Reference

Ask the NBFC Consultant to give you a minimum of three references of clients

Step 2 – Business Plan

Founders and Executive Summary
Loan Product
Lending Process with SOP (Standard Operating Procedure)
SWOT Analysis
Credit & Risk Model
Competitors Analysis
Lending model – Digital / Branch Model
Financial forecast

Step 3 – Application for CoR (Certificate of Registration)

The middle name of Company must have Finance, Finserv, final, Investment, Capital, Fintech, and Leasing etc. For Example Enterslice Capital Limited
Create a Fixed Deposit of Rs. 2 Cr with Scheduled commercial bank
Verify the Backgrounds of Promoters
Necessary documentation for obtaining an NBFC license
Submit an online COR application on RBI's website (COSMOS), thereafter a CARN will be generated
Physical submission of Application with the regional department of RBI
RBI will scrutinize submitted application and COR will be issued.

What are the Support Services from Enterslice after Certificate of Registration from the RBI?

Advisory for Fintech Based Credit Assessment model
Assistance in SOP of the Organization
Assistance in designing loan product
Finalizing reporting formats from various verticals of the organization
Guidance on Digital Financial Services Marketing
Assistance in developing Company Policies
Development of High-Level Business Plan & Investor Deck
Helping founders in preparing to go to market strategy
Assistance in the fundraising process via FDI Automatic route
Assistance in meeting secretarial compliances
Assistance in meeting RBI Compliance
Advisory on Adoption of Ind-AS
Internal Audit Services

What are the NBFC Registration Fees?

For NBFC registration, there is a requirement of minimum capital of Rs. 2 cr therefore an applicant needs to register a company with the prescribed capital along with the requisite government fees.

What are the NBFC Compliances after COR?

There are certain compliances to meet after the completion of the NBFC Registration Process. Additionally, they need to follow the RBI Act, RBI Guidelines, Circulars, and notifications published in the public domain from time to time.

Adoption of Fair Practice Code
Cosmos Registration
FIU-IND Registration
CIC Registration
C-KYC Registration
CERSAI Registration
Filling of NBS-9 by use of Online Platform of RBI (COSMOS)
Secretarial compliances
Compliance of KYC Anti money Laundering
Appointment of Statutory Auditor (CA having 5+ years of experience)
Statutory Audit
Tax Audit.
GST Return Filing
Income Tax Return filing
ROC Returns
Any other Compliance / Returns required by the Competent Authority

Fresh NBFC Registration vs. Takeover of Pre-Existing NBFC

Applying for new NBFC Application is always a better option than a takeover of existing ones. The registration of NBFC is simpler than before. This is especially for Foreign Companies, who intends to enter into the Indian Financial service market.

We always advise them to apply for the new NBFC registration Application instead of buying existing NBFC.

Advantages of Fresh NBFC Registration above NBFC Takeover

Low Legal Risk

In case of NBFC takeover, any past Non-compliance with RBI Act may lead to cancellation of the NBFC License.
Timeline

Fresh NBFC Registration can be completed in a period of 90 to 120 days whereas an NBFC Takeover usually takes 5 to 9 Months.
Title Risk

There is no title risk of Ownership after new registration of NBFC. You are the 1st shareholder of the company at another side in acquiring an existing NBFC. You will not be able to establish the precise title of shares.
Tax Liability

Entities are responsible for a tax liability of existing NBFC they are willing to take over.
Capital

In case of new NBFC License application, you may need to block your Rs. 2 Cr / Rs. 20 Million FD in Bank Account. However, the proposed shareholders are required to submit the Bankers report in a case of the NBFC takeover. The report states that the Bank Balance is equivalent to book value of the shares.

What are the Benefits of Fintech Based NBFC Business Model?

The Integration of new age technological advancements with financial business operations is reaping numerous benefits to the economy. There are many advantages of doing so such as

Addressing customer problems using technological advancements
Online loan facility
Working on financial inclusion – app based loan in 30 minutes
Creating space for the alternative digital banking system, disrupting conventional business models facing significant legacy issues
Use of Big data, AI & Machine learning tools to minimize the fraud

Benefits of Fintech Based NBFC as an Alternative Lending Model

Reduction in Operation Cost

Fintech based NBFC make extensive use of the technology and IT Infrastructure. Hence, the operating cost reduces significantly.
Broad Reach

Fintech NBFC can target a diverse pool of customer beyond geographical limitations. This advantage is outside the scope of the conventional banking system.
Higher ROI

Fintech based NBFC has higher fund cost in comparison to Bank. However, it enjoys a lower customer acquisition cost and lower servicing cost than Banks.
Lower NPA than Bank

Fintech based NPA has higher NPA compare to banks. However, their ROI is much higher than a secured lending model. The alternative lending business model generates twice better profit than traditional lending models.

Why Enterslice

400 + NBFC Clients

100+ Fresh NBFC Registration

300+ Team of CA/CS/Ex-Banker

500+ Cities Served

24X7 Customer Service

9.9 Customer Score

98% SLA Delivery

If you have any additional questions, please feel free to write at Narendra@enterslice.com or Fill the enquiry form as mentioned above, we shall get back to you.